Friday, June 21, 2013

When will the STI rebound?

I was looking at my charts on the STI and saw some similar trends compared to the past 3 years.

The left circle in red was the decline in 2011 during the European financial crisis. The right circle in red is the decline recently.

Here are the stats:
1 August 2011 to 10 August 2011:    3215 --> 2800 = -415
22 May 2012 to 21 June 2012:    3454 --> 3124 = -330

STI has officially fallen below the 200DMA and this is called a technical bear market. When will a rebound most likely happen? Will stocks continue to decline? This is something that nobody can predict and even the best investors in the world will not be able to know. I can only make the analysis and plan my next step. I have the shorter term EMA(20 and 40) to help me decide on an entry point. The ones i circle in green are occasions where the STI broke below the 200MA and went back up again. The shorter term EMA is able to detect a trend change quite accurately for the past 2 sessions. That being said, it is still unpredictable and this is only a way of minimizing risk. Even if i buy in, i will divide my capital into 2 tranches and buy in half first when the trend changes.

3 things can happen next:

1) Stock market reverses from its correction and resumes the uptrend.
2) Stock market trends sideways for a period of time
3) Stock market crashes and goes down lower.

Remember to have a plan no matter what the outcome will be. If your style is to cut loss then do that. If your style is to buy in and average down later, then do that. Not one strategy will suit everyone. Each person has to find his own suitable strategy and implement it.

I do hope the market will go lower as its still at the top of an uptrend. If it goes lower, then the risk of buying in is even lower. Let's see what will happen the next few weeks and prepare ourselves for the next course of action.

Invest safely and have a great weekend!

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